Submission to the Financial Reporting Council - Year 2005 Strategy

26 February 2004

Mr Charles Macek
Chairman
Financial Reporting Council
The Treasury
CANBERRA ACT 2650

Dear Charles

Year 2005 Strategy

I wrote to David Boymal, Chairman of the AASB, on 14 January 2004 (cc to you) seeking information about any contingency plans that the AASB (and FRC) have developed in the event that the issue of Standards is delayed beyond May 2004.

In view of recent developments, including the foreshadowed issue of a further ED on Financial Instruments by the IASB in March 2004, and the continuing uncertainty about the extent to which the European Union will endorse IAS 32 ‘Financial Instruments – Disclosure and Presentation’ and IAS 39 ‘Financial Instruments – Recognition and Measurement’, the Group of 100 believes that there is an urgent need for the FRC to review its strategy of adoption of IASB Standards from 1 January 2005.

IAS 32 and IAS 39 are a core component of the Year 2005 package and have significant implications for Australian companies. The requirements of IAS 39 will have significant effects on companies engaged in the banking, finance and insurance industries and also for mining companies and other exporters. In this regard Australian companies will be disadvantaged if IAS 39 is subsequently amended in a way which meets the concerns of European companies. These disadvantages will result from introducing and adopting/modifying information collection and processing systems and impaired comparability with European companies. In addition, implementation is costly and any duplication of this activity is an additional burden for companies.

The Group of 100 remains committed to, and strongly supports, international harmonisation and convergence including the adoption of IASB Standards. However, the Group of 100 believes that Australia should not adopt IAS 32 and IAS 39 until:

the current uncertainties, including endorsement by the European Union are resolved; and
the concerns of Australian companies about the timing and requirements of the Year 2005 Standards and not moving concurrently with the EU are addressed.

The Group of 100 suggests that the most practical outcome would be to defer adopting IASB Standards for one year or such later date when EU endorsement occurs. In this event, consideration may also be given to enabling those companies that are not significantly impacted by the outstanding standards to early-adopt the full suite of standards before the specified date.

The Group of 100 requests the FRC to give this matter urgent attention.

Yours sincerely

John V Stanhope
National President